Interview with Top Management
Daiken Group's Value Creation

Accelerate the transformation to sustainability andimprove the resilience of corporate management
2nd Stage.
What were the achievements and issues
over the past three years?

We achieved good results, especially in the expansion
into global markets, mainly the North American market. To
expand into the North American housing market, whichis the world’s largest wooden housing market and about

7

DAIKEN GROUP REPORT 2022

In the domestic market, we were able to capture
new opportunities related to the securing of workspaces
and sound proofing because of the steady increase indemand for building materials for new houses and homerenovations due to the growing needs for more comfortableliving environments caused by staying at home andteleworking that had prevailed during the COVID-19 crisis.
On the other hand, for public and commercial buildings,
we failed to achieve the sales expansion target becauseof the rapid decrease in demand for building materials foraccommodation facilities and commercial facilities causedby the COVID-19 crisis. Thus, we still have issues to solve.
We have already started to make proposals tailored to
the needs of the new normal by strengthening our sales
structure for public and commercial buildings, and we will
expand and improve the items that incorporated new ideas
developed through collaborations with other companies.
We expect that our proposals will bear fruit as theconstruction projects that were suspended or postponed
resume. In the second half of FY 2022, the delay in thedelivery of some products in the building materials business
was caused by a greater-than-expected increase in orders

DAIKEN GROUP REPORT 2022

Data

P.30

P.31-32

Foundation Supporting Value Creation

P.4▲

Medium-Term Management Plan
GP25 2nd Stage▲

Long-Term Vision GP25

Results of the Strategies by
Business Segment and Market▲

Representative Director, President

In 2015, the 70th anniversary of the foundation of
the company, we formulated the long-term vision, GP25
for 2025, 10 years after 2015, and announced our goal to
become an all-embracing company for building materials.
The reason behind the formulation of GP25 was that wewere a housing materials manufacturer back then, andmost of our sales came from products for the domestic
new housing market; therefore, revising our business andmarket portfolio was a huge management challenge forus since new housing starts would decrease because of
the declining population in the future. Thus, we decided to
strive to become an all-embracing company for building
materials by expanding our business domains frombuilding materials to the supply of industrial materials andinstallation and construction. We also decided to makeproposals not only for the new housing market but also
for remodeling and renovation of public and commercial
buildings with those industrial materials and expand into
global markets.
FY 2022 was the final year of the medium-term
management plan GP25 2nd Stage, the second phaseof the plan to achieve the long-term vision by dividing the
10 years until FY 2026 into three phases. When we lookback on the past three years when we promoted a variety
of different measures to accelerate the growth strategies
and enhance the management foundation as specified
in the basic policy, we appreciate the fact that we madesteady progress toward achieving the long-term vision andadvanced the stage transition in the midst of unexpectedchanges in the environment due to the COVID-19 crisis.

four times larger than the Japanese market due to thenumber of housing starts and vast floor area and wherecontinuous population growth is expected in the medium
and long term, we merged and acquired a veneer plant in
Canada and an LVL plant in the United States in FY 2020.
Subsequently, the external environment provided a boost.
A wood shock, which was a rise in wood product prices
caused by a combination of strong demand due to thegrowing needs for suburban housing during the COVID-19
crisis and supply chain disruptions, has continued to date,
and the North American business fully capitalized on thatdemand and significantly contributed to the company’s
profits. In addition, there was an increase in demandfor MDF, the primary product in the industrial materials
segment along with LVL in North America, as the basematerial for furniture and buildings. The overseas sales
ratio in FY 2022 was 32%, a significant increase from the
6% in FY 2016 when the long-term vision was formulated.

Strategy for Value Creation

year (FY) 2022 was the final year of
Q Fiscalthe medium-term management plan GP25

8

Interview with Top Management

Initiatives for Priority Markets

Public and Commercial Buildings

P.39-40▲ ▲Global Markets

P.41-42P.4

are the key points in the GP25 3rd
Q WhatStage?
We formulated the GP25 3rd Stage using a backcasting
method that started from the updated version of how weshould be in 2025 and the goals set in our environment vision.
The revision reflects our focus on sustainability more clearly
than the GP25 2nd Stage. Because it is the final stage inestablishing our company as an all-embracing company forbuilding materials as specified in the long-term vision, we set
two items in the basic policy: implementation of the growthstrategies and enhancement of the management foundation
centered on sustainability. We will advance our growthstrategies with a focus on our contribution to a recyclingbased society and the fulfillment of user needs in the newnormal in tandem with materiality. As for the managementfoundation that supports the growth strategies, we will
improve the resilience of corporate management in an
uncertain business environment from the four perspectivesof the human resource base, business foundation, financial
foundation, and governance. We will accelerate our initiatives
to pursue the sustainability of raw materials and promote
DX for the business foundation. Since timber is one of themain raw materials that we use, sustainable procurementof timber leads directly to corporate sustainability. We will
advance our initiatives to stop using lauan wood and aim
to improve the level of sustainability of timber procurementin the medium and long term. In addition, we will not only
advance investments in mission-critical systems and therationalization and streamlining of the logistics system but
also promote DX tailored to the new normal by using avariety of digital tools and enhancing digital marketing tostrategically approach customers.
As for numerical targets, the objective will be toachieve 250 billion yen in sales, 15 billion yen in operating
profit, and 10 billion yen in profit attributable to owners

DAIKEN GROUP REPORT 2022

Data

DAIKEN GROUP REPORT 2022

Long-Term Vision GP25

Foundation Supporting Value Creation

9

Realization of resource circulation and a recyclingbased society shows our determination to actively takepart in the realization of resource circulation and contributeto resolving social and global environmental issues.
We have always put the harmonization of an affluent
society and the environment first and created values thatexceeded the expectations of society by effectively using
limited resources. As for wood resources, we have createdproducts from raw materials as a manufacturer and thenfocused on establishing the circulation system so that as
many waste materials as possible, such as timber takenfrom demolished buildings, would not be disposed of or
incinerated and could be used as materials for an extended
period of time. Though our key business is materials
development, such as insulation boards made from timbertaken from demolished buildings and MDF using offcuts
from timber production as a main raw material, which
demonstrates that we use timber with no waste, we arealso advancing our initiatives to use woody fibers for soil
improvement additive and as a wood culture medium
to promote plant growth. As for mineral resources, we
focused our attention on unused resources and worked
to effectively use them. We have developed DAILITE,
our original noncombustible, lightweight, high-strength
material that uses volcanic ash as a raw material. We
will pay attention not only to the wood resources that are

P.51-52

Strategy for Value Creation

Since we have four years left before the deadline forthe achievement of the long-term vision GP25 formulated
in 2015, we are receiving many inquiries from our investors
about our next long-term vision following GP25. Though
we have the option of launching our next long-term visionin advance, we would like to prioritize the completion of ourinitiatives to achieve our goal as set in GP25.
In 2020, the Japanese government announced
its goal to achieve carbon neutrality by 2050. To further
strengthen our initiatives to tackle environmental issues
from a long-term perspective, we formulated the Daiken
global environment vision 2050 (hereinafter called the“environment vision”) in October 2021 and defined ourP.21-22

Human Resource Strategies

When we redefined those three material issues tocope with, we also updated how we should be in 2025
as set in the long-term vision and made it more specific,
taking possible changes in the business environment in2035 into consideration.
▲

management plan GP25 3rd Stage wasformulated.
What is the reason behind it?

Risks and Opportunities/
Materiality

managed on a circular basis, such as plantation timber andcertified wood, but also to resources that are not used anddisposed of and then develop materials that effectively use
such resources and develop new applications to accelerate
the expansion into global markets. In that process, our goal
will be to increase the utilization ratio of certified wood thatcomes from appropriately managed forests and accelerate
our initiatives to stop using lauan wood by using ourtechnologies in order to achieve the goals specified in theenvironment vision.
As for the user needs in the new normal, since people’s
lifestyles have changed because of the COVID-19 crisis,
we will strive to meet user needs by employing our unique
technologies to create a safe, secure, healthy and comfortable
space in light of the high frequency of earthquakes and natural
disasters. We will improve our solution proposals that will help
resolve customers’ issues by making full use of our strengths,
such as our functions to evaluate and analyze spaces that wedeveloped through years of R&D and our integrated systemfor developing materials and building materials, supplying
products, installation work and construction.
Though we have identified the third material issue
as human resource base diversification by improving
the work environment and job satisfaction, we believethat the most important management resource forcompanies to promote their business activities is humanresources. Our human resources strategy stresses
the importance of not only promoting diversity as acompany but also actively supporting each employee’s
skill development, understanding the diversity of theirskills as an organization, and placing the right people in
the right positions regardless of gender. I personally place
importance on making sure that each employee feels
happy to be working at Daiken. If employees feel that way,
it will result in greater job performance and then lead tothe enhancement of our organizational strength. We will
actively promote the necessary investments in humanresources while developing more flexible workstyles by
expanding and improving systems and the mechanismsthat enable employees to continue to develop their careers
without being influenced by life events and making use of
teleworking and shared offices that have become popularduring the COVID-19 crisis.

▲

issues to cope with (materiality)
Q Material
were redefined when the new medium-term

P.47-50

The external environment surrounding us has drasticallychanged because of the pandemic that we did not anticipate
when we formulated the long-term vision GP25 in 2015, in
addition to the higher geopolitical risks. With these changes
and the issues we identified in the GP25 2nd Stage in mind,
we need to formulate the GP25 3rd Stage as a concrete
action plan to achieve our group corporate philosophy
and environment vision. Therefore, we decided to review
the megatrends and our strengths, looking ahead to 2035
beyond 2025, and to redefine materiality in terms of priority
and the coping mechanism. Specifically, we identified threematerial issues: realization of resource circulation and arecycling-based society, user needs in the new normal, andhuman resource base diversification by improving the work
environment and job satisfaction.
▲

P.69

▲

Medium-Term ESG Plan (Fiscal
2020-2022)

P.30

▲

Medium-Term Management Plan
GP25 2nd Stage

Environmental Strategy▲

As for performance, we failed achieve the final year
sales target specified in GP25 2nd Stage. However, ouroperating profit was 17.3 billion yen, which far exceeded
the target of 12 billion yen, and we exceeded all profit
targets. We appreciate the fact that we were able toconsistently accelerate our growth by achieving significant
results as reflected in the major financial indicators of an
ROE of 10.9%, an ROA of 10.5%, and an equity ratio of
41.7%.
In addition, as initiatives related to ESG andsustainability become increasingly more important eachyear, we have set nonfinancial goals and worked on them.
As for the environment, we were able to decrease CO2
emissions by 36%, exceeding the total domestic CO2
emissions reduction goal of 26% (compared to FY 2014) andachieved the goals we set based on our original indicators
to raise the level of our initiatives related to diversity. On theother hand, though the degree of penetration of the group
corporate philosophy developed on governance improvedby five points compared to FY 2018, we failed to achieve
our goal of a ten-point increase. We will consistently
work to disseminate the Group Corporate Philosophy bycontinuously implementing penetration programs so thatall group employees can relate to the philosophy andperform their daily work according to it.

policy and long-term goals to achieve the three zeroes by
2050: net zero greenhouse gas emissions, zero final landfill
disposal of waste, and zero use of natural lauan wood madefrom lauan trees found in Southeast Asia. Because wehave grown by doing business with a focus on the effective
use of limited resources, including wood resources, since
the foundation of the company, sustainability is one of thestrengths directly connected to our businesses. Though
we set the bar high, we will make consistent efforts toachieve our goals throughout the entire value chain bysetting greenhouse gas emission reduction goals for ouroverseas businesses since we set our goals only for ourdomestic businesses, including Scope 3 emissions as well.

Daiken Group's Value Creationand maritime transportation disruptions; therefore, we had
no choice but to limit the number of orders, which caused
significant inconvenience to our customers and business
partners. Though we no longer limit the number of orders,
we realize the major impact that our supply chain has on
the entire industry and will make every effort to prevent itfrom happening again.

10

Interview with Top Management
Summary of the strategies of the new medium-term management plan GP25 3rd Stage*If excluding the decrease in sales by 21.2 billion yen associated with the change in PWT in the U.S., which is our special subsidiary

Domestic market
Home renovation market

Public and commercial
buildings

Industrial materials

Composition Ratio
MarketEnvironment
Execution of the
Growth Strategy
Sales by BusinessIndustrial materials
business➡ ➡

+3.8 billion yen➡

-5.6 billion yen[+15.6 billion yen]*

34 → 32%

15 → 16%

10 → 15%

9 → 11%32 → 27%

Gradually decreasing trend indomestic new housing starts

Distribution of secondhand
housing and revitalization of
condominium renovations

Changes in how an office space should be

The U.S.A.: Medium- to longterm stable housing demand

Penetration of working at home and remote work

Recovery in inbound demand

New/alternative utilization
development (From plywood
and plastics to woodfiberboard)

Redevelopment projectSoutheast Asia: Recovery/growth

Building materials
建材事業 businessIndustrial materials business inNorth America

An increase in share by functional products that correspond to the needsof users in the new normal era
Corresponding to remote work, improvement of the sound environment, and antiviral functions

Capacity expansion[+25 billion yen]*➡

+12 billion yen

Expansion of the products thatsave construction time and work

Proposals of the improvementof the thermal environment

Expansion of condominium
renovations in the Tokyo
metropolitan area

Expansion of the interior
projects in the redevelopment
projects

Engineering businessEngineering business➡

+13.2 billion yen

Industrial materials business: MDF
Structural reform and capacity expansion
Improvement of the ratio of the products with high added value

Industrial materials business in Japan

Building materials business

Acquisition of alternative demand, capacity expansion, and development of new materials

Supply expansion to Europe
and Asia

Optimization of the logistics system

Business
Foundation

Consideration of the introduction of
new products using the sales channels

Enhancement of cooperation in the group andoptimization of the production system

Operational efficiency and productivity improvement using digital technology and restructuring of the core system
Pursuit of the sustainability of raw materials / Initiatives for eliminating the use of lauan wood (tropical natural wood)
Reduction of greenhouse gas emissions in the supply chain
Promotion of diversity and flexible work styles
Optimization of the sales structure and personnel (Shift to the prioritized markets) / Prioritized market enhancement program

Financial Foundation Investments in growth and foundation enhancement, financial soundness, and cash flow allocation that optimizes the improvement of shareholder return

kind of approach is taken
Q Whatconcerning investments for future growthand management resource allocation?

11

DAIKEN GROUP REPORT 2022

P.45-46
P.53-56

are the key points in medium- to
Q Whatlong-term value creation and the directionof management?
The key point in value creation is to harmonize
the promotion of resource circulation, climate change
mitigation, and coexistence with nature, the three themes
specified in the environment vision, with our growthstrategies.
The global environment is seriously deteriorating
at the global level with problems of resource depletion,
increasing waste, climate change, loss of biodiversity due
to deforestation, and other issues. These are the urgent
issues we need to work on. Daiken Corporation was
founded immediately after the war with an eye to effectively
using timber as valuable resources and contributing tosociety through postwar reconstruction. Since then, withthe goal of using timber with no waste, Daiken focusedon the advantages and disadvantages of timber as asustainable resource and brought out its full potential asa material by developing technologies that can overcome
its weak points and bring out the best in the resource. Inthat way, Daiken created new values for society. One of thebiggest features and strengths is that Daiken has grown

Our Sustainability Goals

P.5-6

▲

We will continue active growth investments at the righttime in the GP25 3rd Stage as well, taking into consideration
the geopolitical risks, the rise in resource prices, andexchange rate movements. As for management resource
allocation, we will set a strategic investment ceiling of 40
billion yen using the operating cash flow that is expected
to reach approx. 70 billion yen in four years and the cash
obtained by improving asset efficiency from the reductionof cross-shareholdings as capital and allocate it to growthinvestments as the top priority. The core element of growth

Financial Strategies

Data

P.37-38▲

Strategies by Business Segment
and Market

P.35-36▲

The New Medium-Term
Management Plan GP25 3rdStage

investments is reinforcement of the industrial materials
business, our growth driver, overseas. As for areas, we willplace greater importance on efficiency and focus on North
America. Additionally, we will concentrate on Asia andOceania with a focus on strengthening the MDF business.
Furthermore, we will advance the investments necessary tostrengthen our foundation, such as investments related torationalization and streamlining of our domestic businesses
and R&D/human resource/environmental investments, as
our ESG investments. Since R&D is the core element ofvalue creation, we underwent an organizational change in
FY 2023 to shape new businesses for the next generationand strengthen the system of linking the intellectual
property strategy to R&D. Furthermore, we intend to
gradually raise R&D investments to about 2% of sales witha view to strengthening the development of technologies
that enable global expansion. As for environmental
investments, we increased the renewable energy utilization
ratio to 50% in Japan by using wood biomass boilers thathave synergies with the industrial materials business. We
will consider introducing other types of renewable energy
to reduce our greenhouse gas emissions both in Japanand overseas. In addition, as the effects of environmental
investments cannot be measured only by returns, we willconsider introducing internal carbon pricing. Forty billion▲ ▲Research and Developmentof the parent in FY 2026, the final year of the GP25 2ndStage, by tackling the rise in raw material costs caused by
global inflation resulting from the rise in resource prices,along with structural reform and cost reduction efforts tomaintain profitability as improved in the GP25 2nd Stage
while taking into consideration the fact that the market
prices of wood products in North America will be adjusted.

through businesses that contribute to the sustainability of
the global environment with a focus on wood resources.
When it comes to the initiatives to addressenvironmental issues, Daiken tends to look at risks in termsof whether there is a tradeoff between business growthand such initiatives because costs precede in the shortterm. However, from a medium- to long-term perspective,
tackling environmental issues provides new business
opportunities that enable the company to create lastingvalue. We will achieve the stage transition to establish a
new growth path by changing our perspective and turninga tradeoff into a trade-on and risks into opportunities.
As for the promotion of resource circulation, in addition
to the unused resources of volcanic ash used in the
aforementioned DAILITE, even resources that are disposedof today have the potential to generate unprecedented
value through the use of company technologies. Whenit comes to the climate change mitigation, Daiken cancontribute to carbon neutrality by establishing technologies
to create new renewable materials that include cellulose
nanofibers and by creating a new standard that can replacepetrochemical resources. In addition, Daiken will strengthen
its initiatives to make wood resource procurement, which isvital in our businesses, sustainable.
Linking the growth strategies to the environment
vision is to link the sustainability of businesses tosocial and global environmental sustainability and thenimprove competitiveness and the resilience of corporate
management. In order to do this, it is necessary to review
and reestablish how the entire value chain should workfrom the perspective of sustainability, looking beyond R&D,
raw material procurement, production activities at theplants, and the delivery of our products to our customers,
their use, and their end of life. With these concerns in mind,
we revised and evolved the traditional CSR basic policy
and developed the Daiken sustainability basic policy. As
an executive in charge of managing the company in timesof uncertainty, I am determined to improve sustainablecorporate value by bringing together the group’s
technologies, ideas, and passion and strongly promoting
sustainability transformation (SX). We sincerely ask for yourcontinued support.

Foundation Supporting Value Creation

Human Resource
Foundation

yen, which is our strategic investment ceiling, and 20 billion
yen for ordinary investments in BCP and safety measures,for a total of 60 billion yen, will be allocated to investments
for growth and foundation enhancement. At the sametime, we will promote the penetration of ROIC (return on
invested capital), the new internal management index thecompany has adopted, to pursue asset efficiency in theentire management.
As for shareholder returns over the four years of the
GP25 3rd Stage, the company paid dividends with thegoal of achieving a dividend payout ratio of 35% andDOE (dividend on equity) of 3.5% with a focus on theenhancement of returns linked to business performanceand the stable payment of dividends that is unlikely to be
influenced by short-term profit fluctuations. The company
revised its policy so that shareholders who would stably
continue holding shares in our company for a long periodof time could sit down and invest in the company.

Strategy for Value Creation

Building materials
business

Enhancement of
the Management
Foundation+7.2 billion yen➡

+13.8 billion yen➡

+6.9 billion yen➡

➡

+5.1 billion yen➡

Sales by Market

Growth driver[+47.8 billion yen]*

Daiken Group's Value Creation

Sales: 223.3 → 250 billion yen (+26.6 billion yen)➡

Securing of the revenue base (An increase in the share of new housing, shifting to housing stock and non-housing, and material utilization development)

Global markets➡

Domestic new homemarketMarketDAIKEN GROUP REPORT 202212